Dismal data from Crayfish

Japan info-tech spending remains strong

By

GailNakada

It wasn't a very merry Christmas for Crayfish.

Customer data for December reveals dismal figures for the company, which provides e-mail and other Internet-related services to small and medium-sized businesses. It had 2,948 cancellations and only 146 new contracts resulting in a net decrease of 2,802. Contracts fell by 5.3 percent to reach a total 50,463. The one-year retention rate sank, hitting a new low of 39.7 percent. See data.

Crayfish terminated the sales and service contract with Hikari Tsushin, its largest shareholder, as of November 1. Naoko Tomita, chief financial officer, said the company is determined to address issues of customer service and poor sales initiatives. "During November and December we transferred all of that work over to Crayfish. From this month we can start selling our services through our own direct sales force," she told CBS.MarketWatch.com. "We know that we need more sales people, right now we have about a dozen in direct sales, but we are already working on hiring more both for sales and marketing." Tomita also points out that the company has finally integrated its customer support center under their own control.

In Nasdaq trading, Crayfish American depositary receipts
CRFH
rose 5.26 percent to end at $7.50.

WestLB Securities analyst, Ortwin Gierhake points out that the December data underlines the urgent need for Crayfish to rebuild its distribution system. "One hundred-forty six new contracts is a disaster. Based on management statements we suspect that quite a few of those were initiated during the collaboration with Hikari (Tsushin), meaning that we might have to expect even fewer contracts in the months to come." Mobile phone and Internet investment company Hikari Tsushin
HKTGF, +0.00%
however, is caught in a dizzying downward spiral of its own, with shares down 99 percent since the start of the year.

Crayfish has made a number of large investments in the past few months. In December 2000, the company paid 150 million yen ($1.27 million) for a 13.8-percent share of Bull Life, which operates "Gokuraku-Ichiba" (http://www.gokurakuichiba.co.jp/), a family health and welfare oriented portal site. Also in December, Crayfish made a 600 million yen strategic equity investment in Intranets Japan, the Japanese subsidiary of U.S.-based Intranets.com , to provide Crayfish's paid e-mail service on an OEM basis. On top of these investments, the company changed the name of its hosting service from Hitmail to Desk Wing on Jan. 10 - that means additional costs for re-branding. Crayfish's woes have affected its ability to generate a flow of new clients. Says Geirhake, "We would prefer Crayfish teaming up with a technological partner, which has client access and staff on the ground to speed up distribution and customer service. Crayfish is trying to spend its way out of the crises with a spending spree, which is not likely to reverse the current situation."

Yet Crayfish is mulling even more spending within the next few months. "We are thinking of investing in an Internet portal, one targeting individual users in the mid-20s to 40s range," says CFO Tomita. "These are heavy Net users. We are also looking at perhaps a Groupware company for business. These would increase our net contracts."

Crayfish lists on Tokyo's Mother's bourse and the Nasdaq, where its shares closed last Friday at $7.12. WestLB Securities is keeping its rating for Crayfish at "underperform."

Japan IT spending still strong

Stock valuations of U.S. giants like Cisco
CSCO, +0.00%
and Microsoft
MSFTP
have been thrown into disarray by reports of U.S. industry cutting back on IT spending. High-tech firms in Japan however can breathe a sigh of relief as companies there continue to invest in new information systems. A survey by Nikkei Market Access, part of Nikkei Business Publications, shows nearly 60 percent of Japan's major companies plan to increase spending on IT systems in 2001 over 2000. A little under half of those surveyed said planned spending would grow by around 20 percent. The survey also reported that in the non-manufacturing sector, 61percent would increase investments.

NEC ships Zone Labs IT security solutions

There were 11,109 reports of virus attacks on computer systems in the country last year - three times the total for 1999, according to Japan's Technology Promotion Agency, whose figures were published by the Yomiuri newspaper. Hacking is a crime in Japan but believe it or not, sending a computer virus is not. Though the government hopes to change that law sometime this year, security fears have Japanese corporations rightfully concerned. Japan's NEC
NIPNY
has begun shipping a new category of product solutions for the Japanese small-to-medium size business market powered by Zone Labs' enabling technology. The new solutions, called PCGATE, protect Internet-connected PCs with centrally enforced Internet security and policy management tools.

Headquartered in San Francisco, Zone Labs best-known product, ZoneAlarm, has been downloaded by more than eight million PC users since its introduction in early 2000, making it the de facto industry standard. ZoneAlarm Pro, which began shipping in August 2000, builds on ZoneAlarm's security and ease of use.

EZcomm looks for loyalty in Taiwan

EZcomm
EZMM
a loyalty solution provider in Asia, is expanding its loyalty and customer relationship management platform, the Real Rewards program, in Taiwan.

Ezcomm new strategic partners are: South China Insurance, one of the largest publicly listed general and property insurance companies in Taiwan; home improvement chain Working House; Cellstar, Taiwan, a mobile phone distributor and major retailing channel partner for Motorola and HelloAsia.com, a Web based loyalty solution company.

By the end of last year, membership in the Real Rewards Program in Taiwan has almost reached 100,000. The company, listed on U.S. Pink Sheets, is counting on Real Rewards cardholders to generate a minimum of US$5 in net "loyalty points"-related revenues to EZcomm per month. The company is rather generously predicting its membership base will grow to one million by mid-2001, grossing them $5 million per month. Given Taiwan's current market conditions - and its dependence on exports of electronics goods for a healthy economy - Ezcomm might not want to start spending that money quite yet.

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